Probe Into Generic Drug Price Fixing Set To Widen

Forty-five states and the Department of Justice are claiming that generic-drug prices are fixed and the alleged collusion may have cost U.S. business and consumers more than $1 billion.

In their complaint, prosecutors say that when pharmacies asked drugmakers for their lowest price, the manufacturers would rig the bidding process.

"The companies would work out in advance who would get the lowest price and then the other competitors may put in what we would call a cover bid," says Michael Cole, who heads the antitrust department at the Connecticut attorney general's office. (Such bids give the appearance of competitive bidding.)

Through subpoenas, Cole's team has assembled millions of texts, emails and phone calls between 2012 and 2015. The prosecutors say the records show executives divvying up customers, setting prices and giving the illusion that generic pharmaceuticals were transacted in an open and fair marketplace.

Because of this price-fixing scheme, prosecutors say, health insurance premiums and copays increased. They also say tax-funded programs like Medicare and Medicaid overspent on drugs.

So far, two executives from Heritage Pharmaceuticals have pleaded guilty to antitrust crimes. Both are now feeding information to prosecutors who say the two rigged prices on, among other drugs, the common antibiotic doxycycline, which shot the price up 8,000 percent.

"To the extent that taxpayers have had to pay that bill, I think that the taxpayers should recover. And we will get involved on the civil side and recover damages for the U.S. government," Makan Delrahim, head of the Department of Justice's antitrust division, said at a seminar.

The fact that the Department of Justice is involved has caught the attention of class-action lawyers.

Jason Dubner, an attorney for Butler, Rubin, Saltarelli & Boyd, says the allegations are so massive that prices throughout the generic industry could have been affected. "You start to get an understanding just how widespread this alleged conspiracy was to cover so many different types of cures," he says.

Law firms that specialize in class actions have already lined up as many as 80 companies that may have paid too much, including retail pharmacies, employee unions and insurance companies. Dubner predicts more will join as the lawsuit progresses, perhaps even individual consumers.

The pharmaceutical manufacturers named in the complaint have either declined to comment or denied the allegations, saying they have a robust compliance program.

Ronny Gal, a market analyst for Sanford Bernstein, says on average, the generic-drug industry has lowered prices for consumers. But, he says, in an efficient marketplace, generic-drug wholesalers should have kept prices in check.

"In a market that has only three or four really large distribution organizations, they are sometimes tempted to maximize their own profits in a way that does not always 100 percent reflect the best interest of their clients," Gal says.

This is what investigators are looking at now. In their complaint they suggest — but don't allege — that the price-fixing conspiracy also involved drug distributors. Prosecutors are sending more subpoenas and planning a new complaint.

"It could be more generic manufacturers, it could be more drugs, it could be more entities in the distribution chain. It could be all of that," Cole, of the Connecticut attorney general's office, says.

A spokesperson for McKesson, one of the largest generics distributors, said the company is cooperating with requests for information from prosecutors and that it competes aggressively for the lowest price available.

Based on what's in the current lawsuit, Gal estimates an eventual settlement would be around $1 billion. But he says that number could go as high as $5 billion, especially if more drugs are included.

Federal and state investigators say some generic drugmakers have been fixing prices. Nineteen companies have been named so far in a scheme where investigators say consumers were overcharged for a long list of medications. Charles Lane of member station WSHU reports.

CHARLES LANE, BYLINE: Prosecutors say they have a good idea about how the scheme worked. Let's say Walgreens or another major buyer needed drugs. The pharmacies wanted the lowest price, so they would ask generic drugmakers to bid.

MICHAEL COLE: And what would happen behind the scenes is the companies would work out in advance who would get the lowest price. And then the other competitors may put in what we would call a cover bid.

LANE: Michael Cole heads the antitrust department at the Connecticut attorney general's office. Through subpoena, his team has assembled millions of texts, emails and phone calls between 2012 and 2015. They say the records show executives divvying up customers, setting prices and giving the illusion that generic pharmaceuticals were transacted in an open and fair marketplace.

COLE: Because of price fixing, a couple of things are going to happen. Your premium's going to go up. Your co-pay is going to go up. Or both of them are going to go up. Some of these programs are just straight up taxpayer-funded programs. Medicare, Medicaid has a prescription benefit.

LANE: So far, two executives from Heritage Pharmaceuticals have pleaded guilty to antitrust crimes. Both are now feeding information to prosecutors who say the two rigged prices on, among other drugs, the common antibiotic doxycycline, which shot the price up 8,000 percent. Most companies named in the complaint have denied wrongdoing. The fact that the Department of Justice is involved has caught the attention of class-action lawyers. Attorney Jason Dubner says the allegations are so massive, prices throughout the generic industry could have been affected.

JASON DUBNER: Dermatological cures, antidepressants, cardiac care, antifungal, gallbladder - like, you start to get an understanding of just how widespread this alleged conspiracy was to cover so many different types of cures.

LANE: Law firms that specialize in class actions are lining up more companies who may have paid too much, like retail pharmacies, employee unions, insurance companies and even individuals.

DUBNER: Yes, individual consumers would then also have the potential to file notice of claim and potentially recover for their damages.

LANE: Ronny Gal is a market analyst for Sanford Bernstein. He's a bit skeptical that the generic drug industry is as nefarious as the plaintiffs describe. But he says, in an efficient marketplace, generic drug wholesalers should have actually kept these prices in check. But that didn't happen.

RONNY GAL: In a market that has only three or four really large distribution organizations, they are sometimes tempted to maximize their own profits in a way that does not always 100 percent reflect the best interests of their clients.

LANE: This is what investigators are looking at now. In their complaint, they suggest but don't allege that the price fixing conspiracy also involved drug distributors. Connecticut Assistant Attorney General Michael Cole said his office is planning more subpoenas.

COLE: It could be more generic manufacturers. It could be more drugs. It could be more entities at different levels in the distribution chain. Could be all of that.

LANE: Knowing only what's in the current lawsuit, analysts estimate that an eventual settlement could be around a billion dollars. That number could go as high as $5 billion, especially if more drugs are included.

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